The economy of Tanzania continued to expand in 2013 at a rate of 7.1 percent building on its
performance in 2012 when it recorded a growth rate of 7 percent per annum. This observed
growth was driven by capital intensive, but less job-creating sectors, such as communication,
transportation, construction and retail trade. The exchange rate, which had appreciated by more
than 20 percent in 2012, remained fairly stable in 2013, supporting a disinflationary path. The
inflation environment was effectively anchored and continued to trend downwards during the
second half of 2013. In December 2013 the annual headline and core inflation were 5.6 percent
and 4.5 percent, respectively, down from 12.1 percent and 8.9 percent in December 2012.

Although the current account balance in 2012 improved because of strong performance of the
export sector and low value of imports compared to 2011, the momentum could not be
maintained in 2013 due a decline in the growth in exports, which fell by 5 percent, whereas the
decline in imports fell by 2.7 percent. The economy was still vulnerable to external shocks,
gravely affecting its external trade balance, especially from the variations in export prices of
commodities such as gold and import prices of commodities such oil. Another unsettling
development was the widening of fiscal deficit from 5 percent of GDP in 2011/2012 to 6.2
percent in 2012/2013. This could be tied to government's failure to meet its targets in revenue
collection from identified targets, on one hand; and inability to rationalize public expenditure in
relation to collected revenue. The fiscal deficit could also be attributed to the general desire to
boost future economic growth by investing in physical and human capital development. A case
in point in the sudden increase in public expenditure was the “Big Results Now (BRN)” where
the selected six priority sectors were assured of more funds.

Looking forward, the economy is likely to remain on its current growth trajectory into the near
future. This growth may be accelerated by the recent offshore discoveries of substantial reserves
of natural gas which, if found to be commercially viable, is expected to become the driving force
for FDI in the country. Given the right policies, revenue from natural gas and the associated local

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ESRFs activities are supported by the Government of the United Republic of Tanzania, United Nations Development Programme (UNDP), African Capacity Building Foundation (ACBF) and International Development Research Centre (IDRC)